Monday, December 31, 2012

The reason for rising food prices

Diners beware!  Restaurant prices everywhere are on the rise.

While enjoying dinner recently at Romano’s Macaroni Grill, I noticed that almost every menu item had increased by at least one dollar from earlier this year.  The same observation was made at other sit-down restaurants I’ve visited in recent weeks. 

In my interview with Bert Dohmen earlier this month, he and I discussed the trend of rising prices at retail food establishments.  Dohmen believes that we can expect to see more inflation (rising prices) in essential consumer goods such as food, and deflation (falling prices) in non-essential durable goods.  I agree.  

I think we can attribute the rising food price trend to the Fed’s policy of artificially boosting retail prices in the face of the long-term deflationary cycle (i.e. the 120-year Kress cycle).  The Fed refuses to let the cyclical forces of deflation take their proper course.  If the Fed/U.S. government stood back and allowed a complete de-leveraging of the excesses from the previous decade to occur, the Great Recession would actually present fabulous opportunities for the savers among us.  Falling prices would encourage long-term investments, and it would be a boon for lower-income families.  An honest de-leveraging process would also save the endangered Middle Class from ultimate extinction. 

Unfortunately, the Fed is determined to maintain its fight against deflation with all its might.  For a while, at least, this means we can expect to see higher prices at grocery stores and restaurants.  But as my late mentor Samuel “Bud” Kress would say, there’s ultimately no way of prevailing against the forces of Mother Nature and Father Time.  The Kress cycle will have the final say in this matter and the Fed will be powerless to stop it.

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